In the past few months, the European Union (EU) has pursued a noticeable transition in its China policy, suggesting that Europe is taking an increasingly critical stance on China. In March 2019, a ten-point plan published by the European Commission explicitly described China as “an economic competitor in pursuit of technological leadership and a systemic rival promoting alternative models of governance”. Calling China a “strategic competitor” reflects the EU’s growing concerns of rising competition with China. Moreover, it institutionalizes the reoccurring criticism over the lack of reciprocity of market access for European companies in China. The EU has also raised security concerns over foreign direct investment (FDI) from Chinese state-owned enterprises and technology companies.

Nevertheless, Beijing does not necessarily consider this new EU statement a bleak note for China, arguing that cooperation remains the dominant component of EU-China relations. China´s Foreign Minister Wang Yi pointed out in a meeting with the EU High Representative for Foreign Affairs and Security Policy Federica Mogherini that well-balanced, healthy competition between the EU and China was normal and would further incentivize cooperation between the two regions. In support of bilateral ties with European states, China is speeding up efforts to improve market access, by means such as negotiating the bilateral investment treaty (BIT), regardless of the fact that an increasing number of EU members are pursuing tighter restrictions on Chinese FDI.

The evidence indicates that despite the hardline language and the EU’s increased scrutiny of Chinese investments in Europe, Beijing is unlikely to fundamentally alter its approach to the EU. There are two supporting reasons: 1. China perceives the EU’s newly released China policy as a pragmatic focus on economic relations albeit slightly more assertive than before; 2. China values Europe as a strategic partner in trade and other global affairs.

 

Explaining the coherence in China’s approach to the EU

 

China is not shifting its EU policy amid the aforementioned changes, because it remains unalarmed by the EU’s statement. This is a key underlying factor for a pertinent understanding of China´s EU policy in the near future. The fundamental reason for this stems from the fact that Beijing does not see the EU politicizing key economic issues. In the light of this, Beijing is willing to discuss the economic issues, regarding which negotiations are more resilient for China compared to political issues. While the EU appears to line up with the US on certain China-issues such as intellectual property protection, market access, and fair competition, Europe has consistently tried to avoid taking a side in the ongoing trade war between the Trump administration and China. It is true that the EU’s recent policy document reflected a will to strengthen the competitiveness of European firms and to push China for more reciprocal market access. These remarks, however, serve a means rather than an end.

Despite leveraging the progressiveness in this document for better conditions in EU-China trade, the EU still values China as a dynamically growing market with strong European interests. In the 2018 China: Business Confidence Survey of the German Chamber of Commerce, 65.9% of German firms said they planned to make new investments in China in the coming two years, compared to only 1.1% of them planning to leave. As the European firms remain confident in the Chinese market, the EU is most likely to take a more pragmatic approach to China without politicizing trade issues, unlike the US which considers China as an all-round strategic rival. The EU’s approach coincides with China’s constant call to depoliticize economic issues, thereby providing spaces for negotiations and cooperation, from which better deals for EU businesses may stem.

Moreover, China needs the European market and vice versa. Thus, as China agrees to the pragmatic approach of the EU, Beijing is likely to steadily extend its interactions with the EU. In the past two years, the Trump administration has challenged and reversed many existing trade practices and international agreements in order to fulfil its “America first” promise. It has not only imposed tariffs on Chinese products, but also repeatedly threatened to do the same to its closest ally, the EU. Given the US withdrawal from the Paris Agreement for climate change and from the Iran nuclear deal, China and Europe are now equally exposed to the manifestation of unilateralism and protectionism coming out of Washington. These new dynamics have provided China with the opportunity to work closer with the EU on a series of issues ranging from climate change, to a reform of the WTO, and to the Belt and Road Initiative. China values the EU as an important political and economic stabilizer against the pressure from the ongoing trade tensions between China and the US. In the past year, China’s economic growth has been hindered by US tariffs and the bans on certain Chinese companies’ access to the US market and technology. In the light of this, the EU, as a trading bloc including individual European countries, appears as an important alternative for China to offset some of the negative economic impacts by continued trade and investment.

 

Future prospects for China’s approach to the EU

 

Although Beijing has been unalarmed by the EU’s new posture and has great interests in the EU market, in the near future, Beijing is more likely to stress the development of bilateral relations with individual European states while steadily maintaining China’s interactions with the EU as a whole. This prospect, again, is coherent with what has been Beijing’s approach to the EU and individual European states in the past.

Ideally, a united and stable EU could significantly reduce transaction costs in EU-China bilateral agreements. However, in practice, EU member states often behave differently in alignment with their national interests, barring the EU from reaching internal consensus towards issues concerning China. The EU did try to raise a united, coordinated voice vis-à-vis China – for example, the 2016 Strategy on China of the European Commission. However, as this strategy was largely based on a consensus shared only by France and Germany, some of China’s key partners within the EU may be under-represented or have contradicting views. In particular, Germany, France, and, to a lesser degree, the UK, China´s core strategic partners in the EU, remain cautious of incoming Chinese investments due to strategic and national security concerns. In contrast, other EU member states, such as the Central and Eastern European countries or Greece and Italy, are much more welcoming of Chinese investments, particularly in China’s Belt and Road Initiative.

On the one hand, Europe’s US$19 trillion single market should have given the EU a huge advantage in trade negotiations, from competition policy, to the setting of regulations and standards. On the other hand, however, this bargaining power was weakened by the lack of a truly united European foreign policy towards China. Too often, focusing on domestic issues or resolving intra-EU divergence, EU members have different priorities and stances, motivated by their particular national interests. While waiting for a more comprehensive consensus by the EU on the economic issues, China has continued to build strong bilateral relationships with individual European countries and within sub-regional cooperation frameworks such as the 16+1 summit, which involves 16 central and eastern European states plus Greece.

Unsurprisingly, the EU fears that China’s initiative could weaken the Union. EU officials are increasingly concerned about the 16+1 summit, which could further divide Europe and help China gain access to individual national markets, hence obtaining more influence within the EU. In 2016, the European Commission insisted that any bilateral relations with China should be coordinated with the EU, to ensure all actions are “in line with EU law, rules and policies, and that the overall outcome is beneficial for the EU as a whole.”

Although China may not have the intention to weaken the Union, Brussels may find that Beijing could end up with better bargaining chips than the EU, thanks to its increasingly close bilateral trade relations with individual European states. Due to its irreplaceable market size and strong purchasing power, Beijing will have much stronger leverage than most EU member states in bilateral engagements. In addition, lacking strategic consensus, the EU is largely incapable of preventing the Beijing-led interactions with individual member states. Until the EU is able to speak to China with a more consensual voice, that better reflects all of China’s existing partners’ stakes, China will continue to project its strong bargaining power in bilateral negotiations. Thus, in the near future, the EU-China relations might become dominated more by Beijing than by Brussels.

Student at Johns Hopkins University School of Advanced International Studies (SAIS)

Zhenhe Ma is a MA student at Johns Hopkins University School of Advanced International Studies (SAIS) concentrating in International Economics and International Relations. Having studied and worked in China, Canada, the US, and Europe, he is particularly interested in China's economic and foreign policy, climate change, and Arctic affairs.

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